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It's a fact that the smartphone industry is slowing, but it's also a fact that it still offers staggering growth and results that continue to surprise to the upside.

The industry could sell some 886 million smartphones this year, nearly half of all mobile phones, up 31% from last year's total, according to analysts. That's 2½ times the total of personal computers that were sold in 2012.

As the industry hurtles this week toward its big annual shindig, the Mobile World Congress in Barcelona, remember that it is still very young and very much in the throes of remarkable change.

Indeed, worldwide smartphone sales rose an impressive 43% last year, although that was down from 58% in 2011 and 72% in 2010, the year that they really took off, following increases of just 24% in 2009 and 14% in 2008, according to research firm Gartner.

But while the industry is maturing, it still can produce unexpected upside. Last year's smartphone total of 700 million was about 10 million more than had been predicted going into 2012, says Neil Mawston, a director of research for Strategy Analytics.

As another example, Qualcomm at the end of January, said its estimate for all the handsets sold last year that came with the more advanced "3G" or "4G" wireless connections was 928 million.

That is 30 million units higher than what Qualcomm had projected for 2012 in November 2011.

The slowing growth, as well as the upside, are consequences of dynamic shifts in technology that either drive sales or constrain them. Smartphones existed before 2010, but they didn't go mainstream until more individuals in developed markets were able to use the Internet at faster 3G speeds, transforming the devices into viable pocket computers for the first time.

WHERE DOES GROWTH come from now? People may be prompted to trade up from their current smartphone to one that can take advantage of the next big thing after 3G—long-term evolution, or LTE.

So far, it seems, individuals don't understand, or don't care, about LTE. A recent note by Jefferies & Co.'s Peter Misek related results of a survey of wireless operators that showed less than half of mobile subscribers expressed interest in LTE.

It may be as simple as technology savvy trickling down to less astute buyers, opines Mawston. "For younger and richer consumers, and those more tech-aware, they know they want LTE," he says. "Those who are older, who have less disposable income, and who are less savvy look primarily to prices" of smartphones.

Nevertheless, Mawston remains confident that LTE will ultimately lure buyers, and that subscribers in emerging markets will be drawn from older 2G cellphones to 3G phones. And next year? "In developed markets, you'll see people trading up to LTE-Advanced," the next bump up in LTE, "while people who've been on 3G will move to LTE."

And so it goes: The industry continues to evolve from what was originally a calling device into a faster, pocketable computing device.

As Susquehanna Financial Group chip analyst Christopher Caso put it in a note to clients last week: "As long as phone OEMs [original equipment manufacturers] continue to introduce new innovations, they are going to convince consumers to upgrade their phones. Until the capabilities of smartphones and PCs converge—and there is still a long way to go—we don't think we will hit a plateau."

Caso sees that as a vote for Qualcomm, pointing out that there are four billion phone users around the world who don't currently use a 3G or 4G phone. In other words, their phones generated no royalty payment to Qualcomm, which is compensated for its industry patents, even when it doesn't sell the chips themselves.

For everyone else in the industry, it's a question of dealing with the stranglehold on revenue and profit that Samsung and Apple hold.

A recent note to clients from Raymond James analyst Tavis McCourt outlines the haves and have-nots in the mobile industry. Apple, notes McCourt, had 13% of the unit sales of mobile phones and tablets combined in the fourth quarter of last year, but it made 40% of the mobile industry's revenue and 75% of its profit. Samsung had 30% of the industry's revenue, and 26% of its profits.

The swing factor for Apple and Samsung is the rise of Chinese makers, such as
Lenovo
(992.Hong Kong),
ZTE
(000063.China) and Huawei, which are second, fourth and fifth behind Samsung in China, the world's largest mobile-phone market, according to Mawston. (Nokia has managed to hold on to third place.)

China-based vendors had 65% of the country's phone sales in 2012, in part because the local retailers and distributors have made an effort to sell Chinese, rather than outside, brands. Apple is in sixth place in China, with just a 7% share of the mobile-phone market, despite rapid growth there. That puts it barely ahead of seventh-place Coolpad, a Chinese firm that you've doubtless never heard of.

As Huawei and the rest try to go international, they are producing the most interesting challenge to the smartphone duopoly. "The [mobile] market always goes in cycles, and Samsung and Apple are having their heyday," says Mawston. "Eventually, they'll be replaced," he adds, as Motorola and Nokia were. "But probably not for a couple more years."